Question

The GDP Deflator reflects a. the prices of all final goods and services currently produced domestically, as does the CPI. b. the price of a fixed basket of goods and services purchased by a typical consumer, as does the CPI. c. the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer.

Answer 1

Answer:

Option (c) is correct.

Explanation:

The GDP Deflator is defined as the measure of price level of all the domestically produced final goods and services in a particular year. Consumer price index is a measure of price level of a fixed basket of goods purchased by a consumer.

GDP Deflator is not based on the fixed basket of goods and services but CPI is based on the fixed basket of goods.

The formula for GDP Deflator is as follows:

= (Real GDP ÷ Nominal GDP) × 100